Thursday, January 12, 2012

Virtual Currency Poker Leaves Real Money on the Table

Tyler York of Betable presents some amazing numbers on how real money gaming would be supremely more profitable than virtual money gaming in "Virtual currency poker leaves money on the table".

Bitcoin, the digital version of a physical casino chip, is not discussed in the analysis. But since it currently falls into that legally unclassified area of 'not-real-money', it will undoubtedly start to appear in those gaming venues that inhabit the monetary space between real and virtual. Tyler York then asks, "given the tremendous revenue opportunity, why haven’t social game companies already offered real-money play?": 
"No, not because Facebook doesn’t allow gambling.

While this was true in the past, Facebook may soon allow real-money gambling on its platform. Even so, social games are on countless other platforms where gambling is already permitted in legal jurisdictions, including Android, iOS, and Google+. These companies didn’t pursue real-money social games for any of these platforms. 

No, not because gambling is illegal in the US.

While the Department of Justice opened the door for states to regulate online gambling within their jurisdictions, the fact that the US market was closed before wouldn’t have stopped major social game companies in foreign markets. The addressable ex-US worldwide gambling market contains millions of players that would give real-money social games the audience they needs to succeed. 

The reason game companies haven’t implemented real-money play is because gambling licenses are tremendously expensive and time consuming to acquire.

While theoretically possible, the process is so painful that the vast majority of game companies don’t even consider it. The time (≥18 months) and money (≥$1M including all associated costs) are an enormous barrier to entry for most game studios. Even if a studio could afford those costs, steps must be undertaken sequentially and spending more money doesn’t shorten the period of time it takes to get a license. There is also the added layer of complication arises from the necessary corporate structuring and off-shoring that must take place to comply with gambling regulations.

These time and money costs are simply too great for the vast majority of small-to-medium sized game studios, and the compliance issues become increasingly prohibitive as you look at large game companies. These huge pains have prevented Zynga and other game companies from offering real-money play to non-US players in spite of the massive potential revenue opportunity. Game companies have been better off investing their limited resources into virtual currency revenue streams because they will monetize immediately, although relatively poorly."

For further reading: 
"The Real 'New Frontier' of Gaming", Tyler York, December 19, 2011
"Real-Money vs Virtual Currency Gaming - Design Outside the Box", Jesse Schell, DICE 2010, May 12, 2011

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